DeBruyn Produce Co. v. Victor Foods, Inc.

• Decision Date: 14 December 1987
• Docket Number: No. 87-2081C-(1).,87-2081C-(1).
• Citation: 674 F. Supp. 1405
• Parties: DeBRUYN PRODUCE CO., Plaintiff, v. VICTOR FOODS, INC., Defendant.
• Court: U.S. District Court — Eastern District of Missouri

674 F. Supp. 1405

DeBRUYN PRODUCE CO., Plaintiff, v. VICTOR FOODS, INC., Defendant.

No. 87-2081C-(1).

United States District Court, E.D. Missouri, E.D.

December 14, 1987.

Jason M. Rugo, Bradley H. Lehrman, Gallop, Johnson & Neuman, St. Louis, Mo., Steven H. Kerbel, Stephen P. McCarron, Sures, Dondero & McCarron, Silver Spring, Md., for plaintiff.

Bruce Nangle, St. Louis, Mo., for defendant.

MEMORANDUM

NANGLE, Chief Judge.

This matter is now before the Court on defendant Victor Foods, Inc.'s motion to rescind the order of this Court entered ex parte in favor of plaintiff DeBruyn Produce Co. on November 17, 1987. In that order, purportedly acting pursuant to 7 U.S.C. § 499e(c), the Perishable Agricultural Commodities Act (PACA) of 1930 as amended, the Court granted plaintiff's motion for emergency relief and ordered defendant to establish a trust bank account containing the sum of $103,252.50. Plaintiff contends that, pursuant to the Court's § 499e(c)(4) jurisdiction, the Court properly ordered defendant to establish a trust bank account as a means to enforce plaintiff's right to payment from the statutory trust created by § 499e(c)(2) and (3). Plaintiff relies upon several unpublished district court orders wherein the district courts, in actions pursuant to § 499e(c)(4), ordered defendants to establish trust bank accounts.

The full text of 7 U.S.C. § 499e(c), enacted in 1984, is set forth in the margin.¹ In summary, § 499e(c) provides as follows: (1) paragraph 1 sets forth the reason why Congress enacted the subsection; (2) paragraph 2 provides that, until full payment is made by perishable agricultural commodity buyers to perishable commodity sellers of the amounts owed as a result of a sale of perishable agricultural commodities, the buyers hold in trust for the benefit of the sellers the following: the perishable agricultural commodities sold, the buyers' inventories of products derived from such products, and the buyers' accounts receivables or proceeds from the sale of the commodities or of the derived products; (3) paragraph 3 provides the procedure by which unpaid sellers preserve the benefits of the statutory trust created by paragraph 2; and (4) paragraph 4 vests jurisdiction in the United States District Courts to entertain "actions by trust beneficiaries to enforce payment from the trust" and "actions by the Secretary to prevent and restrain dissipation of the trust."

Plaintiff sold perishable agricultural commodities, namely onions, to defendant. Defendant has not paid for the onions and plaintiff claims that defendant presently owes plaintiff $103,252.50 for the onions. Defendant disputes the amount it owes plaintiff for the onions. Plaintiff, an unpaid seller of perishable agricultural commodities, by filing the requisite notices of intent to preserve trust benefits with the United States Department of Agriculture, has satisfied the requirements of § 499e(c)(3) to preserve the benefits of the statutory trust created by § 499e(c)(2). Therefore, pursuant to § 499e(c)(2), defendant presently holds in trust for plaintiff the following: any portion of plaintiff's onions which defendant still possesses, defendant's inventories of food products derived from the onions, and defendant's accounts receivables or proceeds from the sale of the onions or of the food products derived from the onions. Defendant asserts that it has complied with the regulations set forth at 7 C.F.R. § 46.46 with respect to the maintenance of this statutory trust. Pursuant to § 499e(c)(4), plaintiff can now proceed in this Court to enforce payment out of the statutory trust created by § 499e(c)(2) and (3) the amount defendant owes plaintiff for the onions.

With this summary of the statute and of its application to the sale of onions by plaintiff to defendant in mind, the Court notes several apparent and related points from the plain text of the statute and from the legislative history of the statute. First, by operation of § 499e(c)(2) and (3) a statutory trust in certain defined res possessed by defendant has already been created. Thus, patently there is no need or justification for the Court to order defendant to set aside different property, namely $103,252.50 in cash, as the trust res and to establish a trust bank account to create a trust res. Second, the legislative history to § 499e(c) makes it clear that § 499e(c)(2) and (3) automatically created a statutory trust for the benefit of plaintiff. See 1984 U.S.Code Cong. & Admin.News at 407-413. The legislative history does not in any way support plaintiff's entitlement to the court-ordered establishment of a trust bank account. Third, § 499e(c)(4) provides for an action to enforce payment from "the trust." The language "the trust" refers to the statutory trust already created by the operation of § 499e(c)(2) and (3). It does not refer to some trust bank account which the Court orders established. Fourth, § 499e(c)(4)(ii) refers to "actions by the Secretary to prevent and restrain dissipation of the trust." This language, together with the provisions of 7 C.F.R. § 46.46 regarding how buyers maintain statutory trusts, demonstrates that buyers must comply with certain bookkeeping requirements so as not to dissipate (and thus so as to maintain) the trust res of the statutory trust for the benefit of the sellers. This confirms that a statutory trust for the benefit of plaintiff already was created by operation of § 499e(c)(2) and (3) (with the trust res being the commodities, products, receivables, and proceeds in the hands of defendant).

The language and operation of § 499e(c) demonstrates that a statutory trust in certain commodities, products, receivables, and proceeds already exists and that defendant holds those items in trust for plaintiff until such time as defendant pays plaintiff what defendant in fact owes plaintiff for the onions. Thus, the language and operation of § 499e(c) refutes plaintiff's contention that affirmative action by the Court in the nature of ordering defendant to establish a trust bank account is necessary at this time as a means to enforce plaintiff's right to payment from the statutory trust. Nevertheless, the Court will examine the background of § 499e(c) to determine if that background provides any support for plaintiff's entitlement to the relief it requests.

Section 499e(c) is patterned after a similar trust provision contained in the Packers and Stockyard Act and adopted in 1976, 7 U.S.C. § 196.²See 1984 U.S.Code Cong. & Admin.News 405, 407, 415; In re Fresh Approach, Inc., 48 B.R. 926, 931 (Bankr.N. D.Tex.1985). Prior to the adoption of § 196, if livestock buyers went bankrupt without having paid the livestock sellers, the livestock sellers' claims in bankruptcy to the livestock, and to the proceeds therefrom, held by the livestock buyers were subordinate to the buyers' lenders' UCC Article 9 perfected security interest in the same livestock and proceeds. Thus, in the bankruptcy proceeding, the buyers' lenders would be secured creditors and would receive the livestock and proceeds; the livestock sellers would be unsecured creditors and would receive little. Mahon v. Stowers, 416 U.S. 100, 94 S.Ct. 1626, 40 L.Ed.2d 79 (1974), on remand to, Matter of Samuels & Co., Inc., 510 F.2d 139, (5th Cir.) on rehearing 526 F.2d 1238 (5th Cir.), cert. denied, 429 U.S. 834, 97 S.Ct. 98, 50 L.Ed.2d 99 (1976); see In re Gotham Provision Co., Inc., 669 F.2d 1000 (5th Cir.), cert. denied, 459 U.S. 858, 103 S.Ct. 129, 74 L.Ed.2d 111 (1982); Hedrick v. S. Bonaccurso & Sons, Inc., 466 F.Supp. 1025, 1029-1030 (E.D.Pa.1978). In response to the bankruptcy of several large livestock packers (buyers) wherein livestock sellers who were not paid by the buyers received little from the bankruptcy distribution because the buyers had given UCC Article 9 perfected security interests to lenders, Congress enacted § 196 in order to give livestock sellers protection if livestock buyers went bankrupt. 1976 U.S.Code Cong. & Admin.News 2267, 2279; see 7 U.S.C. § 196(a); In re Gotham, 669 F.2d at 1002-1003; Hedrick, 466 F.Supp. at 1030.³

The legislative history to § 499e(c) indicates that § 499e(c) was enacted because of the inability of perishable agricultural commodity sellers to protect themselves from the effects of the bankruptcy of their buyers. Section 499e(c) was intended to have the same operation as § 196. See 1984 U.S. Code Cong. & Admin.News at 407-413. In this vein, § 499e(c)(1) is instructive: the perceived burden on interstate commerce which the subsection was intended to remedy was the problem that buyers encumber the commodities by giving the buyers' lenders security interests in the commodities even though the buyers have not yet paid the sellers for the commodities. See 7 U.S.C. § 499e(c)(1). To remedy this problem, § 499e(c) gives perishable agricultural commodity sellers the same protection in bankruptcy which § 196 gives livestock sellers. Identical to the operation of § 196, the statutory trust created by § 499e(c)(2) and (3) makes the commodity sellers' interests in the commodities superior in bankruptcy to the buyers' lenders' UCC Article 9 perfected security interests. See supra note 3; In re Fresh Approach, Inc., 48 B.R. at 931, and 51 B.R. at 419-420. Thus, the primary legislative purpose of § 499e(c) does not lend any support to plaintiff's entitlement to the relief it requests.

In addition to giving sellers protection in bankruptcy, § 499e(c)(4) provides sellers with a means to obtain payment out of the statutory trust res by an action in federal district court. The right to bring an action in federal district court to collect monies owed furthers the general purpose of the PACA, namely assuring prompt payment to sellers. Yet, the existence of the right to bring an action to obtain payment out of the statutory trust does not imply that a district court should force the buyer who has properly maintained the statutory trust to set up a...